In re Decker

IN THE MATTER OF MARTIN M. DECKER AND KATHLEEN H. DECKER, INDIVIDUALLY AND JOINTLY, DEBTORS. APPEAL OF LEUMI FINANCIAL CORPORATION

Kalodner, Gibbons and James Rosen, Circuit Judges.

Author: Kalodner

Opinion OF THE COURT

KALODNER, Circuit Judge.

On February 12, 1971, an involuntary petition in bankruptcy was filed against Martin M. Decker and Kathleen H. Decker ("Debtors"). On February 17, 1971, the Bankruptcy Court entered an Amended Restraining Order enjoining "all persons," including creditors and sheriffs, from selling property of the Debtors, and from commencing, and continuing, any legal action against them.

On February 18, 1971, the Debtors filed a petition for a real property arrangement under Chapter XII of the Bankruptcy Act.*fn1

The appellant, Leumi Financial Corporation ("Leumi") holds a $750,000 mortgage upon two parcels of ground in Bala-Cynwyd, Montgomery County, Pennsylvania. On December 17, 1970, Leumi instituted a foreclosure proceeding in the Court of Common Pleas of Montgomery County, and pursuant thereto a Sheriff's sale was scheduled for March 17, 1971. The foreclosure proceeding named as defendants the Robert Development Corporation ("Robert") which held legal title to the two parcels, and the Debtors.

On March 10, 1971, the Bankruptcy Trustees petitioned the Bankruptcy Court to issue an order requiring Leumi to show cause why it should not be restrained from proceeding with its action to enforce a lien upon the two parcels, and why the Sheriff's sale scheduled for March 17, 1971, should not be enjoined.

The Trustees' petition alleged in relevant part that (1) the Debtors are the equitable owners of the two parcels of ground and that Robert holds title as "straw"; (2) there is an equity in the parcels which should be preserved for the bankrupt estate and they will in all probability become an integral part of the Debtors' Plan or Arrangement, and (3) the foreclosure action and scheduled Sheriff's sale "have been automatically stayed by Section 428 of the Bankruptcy Act made applicable by the filing of the Chapter XII proceedings." 11 U.S.C.A. § 828.

The petition included as exhibits two unrecorded "Certificates of Nominal Title Holder," dated October 2, 1970, which alleged that Robert was the "Nominal Title Holder" and that Martin M. Decker was the real owner of the land.

A hearing on the petition was held in the Bankruptcy Court on March 12, 1971. At that hearing the Secretary of Robert verified the Certificates of Nominal Title Holder. Leumi refrained from cross-examination and offered no evidence. It challenged the jurisdiction of the Bankruptcy Court with respect to the foreclosure proceeding and Sheriff's sale.

On March 15, 1971, the Bankruptcy Court issued an Order enjoining the Sheriff of Montgomery County from proceeding with the sale scheduled for March 17, 1971, and it further enjoined Leumi "from selling or in any way interfering" with the two tracts of land involved in the foreclosure proceeding.

In an Opinion filed April 14, 1971, the Bankruptcy Court stated that "the restraining order was predicated upon the proven allegation that legal title to the . . . tracts of land was held by Robert, as nominal title holder or straw for Martin Decker and Kathleen H. Decker"; "the real property holdings have great value"; and "that the piecemeal sale of the real property of the debtors will be catastrophic in its effect upon the structural value of the debtor's estate"; and that these factors created jurisdiction to enter the Restraining Order.

On this appeal, Leumi challenges the finding of the Bankruptcy Court that the Debtors are the "real owners" of the real estate involved in the foreclosure proceeding on the ground that it lacks jurisdiction to adjudicate, in a summary proceeding, a question of ownership of property held adversely to the bankrupt, except by consent of the adverse claimant, and here consent was expressly withheld. Leumi further contends that the question of ownership of the ground must be resolved in the Court of Common Pleas of Montgomery County, Pennsylvania, in which the foreclosure proceeding is pending.

The Bankruptcy Trustees, in reply, urge that the Bankruptcy Court's Restraining Order of March 15, 1971, was within its jurisdiction under the self-executing provisions of Section 428 of the ...

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